Natural Gas

President Nicos Anastasiades on Tuesday met with a delegation of Israeli energy conglomerate Delek, a partner in the consortium with the concession on the Aphrodite prospect in Block 12 of Cyprus’ Exclusive Economic Zone.

Later, Delek deputy CEO Yaniv Friedman told reporters that during the meeting with Anastasiades “we stressed Delek’s commitment to Cyprus and to the cooperation between Cyprus and Israel and for the development of Aphrodite and we would like to accelerate this and move this project forward as soon as possible.

“We are also moving forward with our plans for Leviathan and we hope there will be close cooperation between the two countries and the two projects,” Friedman added.

British Gas (since taken over by Shell) acquired 35 per cent equity in offshore Block 12, Aphrodite, last November in a transaction worth $165m (€155m).

Under the deal, Texas-based Noble Energy remains the operator of Block 12, retaining 35 per cent of equity. The other stakeholders are Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership, each with a 15 per cent working interest.

The Aphrodite gas reservoir in Block 12 was declared commercial in 2015.

On Monday, Energy Minister Giorgos Lakkotrypis said the government had received from the Aphrodite consortium a ‘revised’ development plan for the reservoir, and would be relaying its observations to the consortium.

“Our doors are open for every company from any country that has vast experience in the development of gas fields, including Russia, of course,” said Netanyahu at a joint news conference, adding that there are no legislative barriers stopping Russian companies working in Israel.

Putin was also asked about the gas contract with Poland which expires in 2022. The Russian President said Gazprom is looking for another partner in Europe who will buy the volume taken by Poland, including Israel.

“Our partners in Poland haven’t refused anything yet. However, the statement we are talking about, was made by a high-ranking official and the company purchasing our gas is state-owned, that’s why we don’t rule out such a possibility,” Putin said, adding that the gas may go to Israel to be then resold to Poland.

The Russian President added that plans for future Turkish Stream and South Stream gas pipeline projects have not been scrapped.

“All we need is a clear position from the European Commission. A clear, understandable and unambiguous stand. There isn’t one for either project,” said Putin.

The Turkish Stream project was frozen in December 2015 after a sharp deterioration in relations between Moscow and Ankara after a Russian warplane was shot down by Turkey. The pipeline was intended to substitute another suspended gas project, South Stream, which was going to deliver Russian gas to southern Europe through Bulgaria, Serbia and Hungary.

Gazprom’s interest in Israeli gas reservoir Leviathan is a strategic issue for Russian President Vladimir Putin.

The Russian press reported at the end of last week that Russia was seeking to enter the Israeli natural gas industry, following a meeting in Russia last Thursday between Russian President Vladimir Putin and Prime Minister Benjamin Netanyahu.
It is believed that Putin wants to take part in the development of the Leviathan gas reservoir. This was not the first time that Russia has tried to strengthen its foothold in the Middle East through control of gas reservoirs. In February 2013, Gazprom, the Russian state-controlled (50.1%, with 49.9% owned by private and other investors) national gas company, signed a memorandum of understanding to buy gas produced from the Tamar reservoir through a floating liquefied natural gas (FLNG) facility. Gazprom agreed to buy three million tons of LNG a year, amounting to 4.1 BCM. The project was never implemented, among other things because the Minister of National Infrastructure, Energy, and Water Resources never approved the export project.

Russia did not give up, however. Gazprom negotiated for several months to buy up to 30% of the Leviathan reservoir. The initiative to recruit a strategic partner in the rights to the reservoir originated in the realization by the current partners that they lacked the financial capability, know-how, and connections needed to realize the huge reservoir’s potential as soon as possible. According to reports, other companies that expressed interest in a partnership in Leviathan included South Korean company Kogas, Chinese company CNOOC, and Australian company Woodside. Gazprom has apparently submitted the highest bid.

However, while the Israelis, led by Yitzhak Tshuva’s Delek Group Ltd.(TASE: DLEKG), were enthusiastic about the possibility of the giant Russian company joining the Leviathan partnership, the US partner – Noble Energy – objected, preferring a Western partner, even on terms slightly inferior to those offered by Gazprom. Indeed, Woodside is the company with which the final negotiations took place, but it withdrew at the last minute, and no contract was ever signed.

Now that the Israeli gas industry is in its poorest position in a long time (dependent on a single reservoir, with the gas plan having stalled, a global gas glut, and plunging global oil prices), it appears that Putin is trying his luck again. Russia’s oil and gas revenues account for 50% of the country’s income (45% from oil and 5% from natural gas), but for Putin, a stake in an Israeli gas reservoir is a strategic-geopolitical issue, not an economic one.

Russia supplies 35% of Europe’s gas and 55% of Turkey’s, and both of these gas consumers are desperately seeking to diversify their sources of supply. Israeli gas flowing from Leviathan through a pipeline to Turkey, and from there to Europe through another pipeline, is one of the most feasible options. One of Israel’s main concerns is therefore that Russia’s primary aim is to forestall the development of Leviathan in order to prevent competition with Russian gas, or if it is developed, to make sure the gas is not sold to Turkey or Europe. Another concern is that Russian involvement in Israel’s gas reservoirs could prove the perfect excuse for the entry of Russian warships in order to “protect” the gas drilling platforms.

Of course, a partnership in Leviathan with the Russian energy giant also has advantages. Gazprom has professional capability in the development and export of gas reservoirs, the financial ability to raise its share of the financing needed to development the reservoir, and a market of customers – or the ability to ensure an off-taker customer. Either way, Israel must think twice about the consequences of such a partnership, which it is difficult to believe that the US will welcome.

04/21/2016

The Russian companies are interested in participating in the gas production projects in the Mediterranean shelf of Israel, according to the materials to the meeting of Russian President Vladimir Putin and Israeli Prime Minister Benjamin Netanyahu.

MOSCOW (Sputnik) — Earlier in the day, the Israeli prime minister arrived in Moscow to meet with the Russian president.

“Among the promising areas of cooperation <…> the energy sphere (Russian companies are interested in participating in the natural gas production projects on the Mediterranean coast of Israel),” the documents read.According to the materials, the promising areas of bilateral cooperation are aircraft construction, agriculture, pharmaceuticals and healthcare.

Netanyahu’s visit comes soon after Israeli President Reuven Rivlin visited the Russian capital in March. During the meeting, with Israeli President, Putin noted that he was planning to hold talks with the Israeli prime minister in the near future.

04/02/2016

Why the High Court ruling cleared the last legal hoops to making the natural gas deal a reality.

Listening to the rhetoric of the critics and the supporters of the High Court of Justice’s landmark decision striking down the government’s natural gas policy, one would imagine that it was a low point of Prime Minister Benjamin Netanyahu’s premiership and a high point for opponents of the policy.

Nothing could be further from the truth.
To understand why, it is important to look not just at the overall result. Admittedly the High Court did strike down, or at least suspend for around a year, the gas policy.

But break down the disparate, multiple decisions and votes the High Court made on several extraordinary issues beforehand, and you will find that while opponents of the deal won the battle and will probably achieve some changes they want in the industry framework, Netanyahu won on a vast majority of the issues – and many of his wins were not obvious ones.
So let’s look at the votes, starting with the votes against the deal.

On one hand, the High Court’s 4-1 decision, with Deputy Supreme Court President Elyakim Rubinstein and justices Esther Hayut, Uzi Vogelman and Salim Joubran voting in the majority against Justice Noam Sohlberg, invalidated the 10-year rule, which means that the gas reservoir developers cannot freeze their desired price and cap on liability.
Also, Rubinstein, Vogelman and Joubran voted 3-2 against Hayut and Sohlberg to strike down the policy, or at least suspend it for a year while the government adjusts it.

Yes, the 10-year freeze of terms such as price and liability was a major aspect of the framework. But it is already evident, only days after the decision, that alternate solutions can be found to give the developers and their lenders their main interest behind the 10-year rule: stability to take a multi-year risk in developing offshore reservoirs.
Stability can be achieved without the 10-year rule. Ideas already being thrown around include the state promising to buy a certain amount of gas if developers cannot sell it at a set price on the free market, committing to cover certain expenses, loan guarantees or incentives for gas buyers abroad.

This has been the focus of celebration and declarations that the country’s democracy has been saved, and of virulent criticism and calls to circumvent the court’s authority.

And that is how almost every High Court’s striking down of a law or policy is greeted in this country.
But again, the real story is in the remaining and less discussed votes.
By a 4-1 majority, with only Joubran dissenting, the justices upheld most of the other aspects of the gas deal, including Netanyahu’s power to override and circumvent objections of the Antitrust Authority on the grounds of national security.